Belgium - Economic update April 2019
Manufacturing resilient so far
Confidence of Belgian businesses and consumers rose in March, after three and four consecutive monthly declines respectively, which might bode well for GDP growth in Q1 2019. The improvement in both NBB indicators followed the bottoming out in Eurostat’s sentiment indicators for Belgium one month earlier. The NBB business barometer even firmed up markedly in the manufacturing industry. This development is surprising as it contrasts to the malaise in German manufacturing. Contrary to the German data, production and order books in Belgian manufacturing have remained quite resilient so far (figure BE1).
Figure BE1 – Manufacturing orders (index, seasonally adjusted)
Incoming data for the Belgian economy are still mixed, however. Export figures in particular remain very sluggish and actually contracted yoy at the end of 2018. In addition, there are signs that the best is over on the labour market as some indicators have made a turn for the worse. For example, the number of job seekers is still declining yoy, but to an ever lesser extent. Consumers’ labour market views also have become gloomier. They appear to be more worried about the unemployment outlook for the coming year, as they have been for five consecutive months already.
Housing market dynamics still strong
In the construction industry, there was a modest reversal of economic conditions as well, with company managers taking a slightly more negative view of order books. The general conditions nevertheless remain at high levels, indicating that construction activity is still in good shape. Since 2012, the housing stock expanded strongly in relation to the number of households in Belgium (figure BE2). In fact, this should have put downward pressure on house price dynamics. In 2012-2014, the pace of price increases indeed slowed, but in 2015-2017 prices rose more sharply again. Last year, price growth fell back to 2.9% yoy, according to Eurostat’s harmonised house price data, from 3.6% in 2017. We forecast the rise in property prices to slow further in 2019-2020 to between 2.0-2.5% per annum.
Figure BE2 – Housing supply vs. demand and house prices dynamics in Belgium
Box 4 - Bankruptcy rates of Belgian businesses back at pre-crisis levels
In 2018 a total of 10,714 businesses in Belgium went bankrupt, a decrease of 1% compared to a year earlier. Although business failures are essentially a microeconomic phenomenon caused by company-specific circumstances, the general macroeconomic situation also plays a crucial role, mainly in the form of lower product demand. Macroeconomic factors tend to exacerbate the problems of businesses that are already in trouble due to other causes, and thus speed up their demise. Figure B4.1 shows the relationship between changes in the number of bankruptcies and economic growth in Belgium. The number of bankruptcies increased steeply during the recessions in the early 80s and early 90s and the recent financial crisis. The increase was less pronounced during the period of weak growth in the early 2000s. Periods of relatively strong GDP growth (1984-1990, 1994-2000, 2004-2007 and 2014-2018) went hand in hand with a reduction, or limited increase, in the number of bankruptcies.
In the past, it appears that economic growth above 2% was needed for the number of bankruptcies to decrease. This was not the case in the recent upswing of the business cycle. Although annual real GDP growth since 2014 remained well below 2%, the rate of decline in the number of bankruptcies was quite strong, almost reaching the peaks observed in the second half of the 80s and 90s. This strong decline also persisted for a relatively long period. In 2014-2018, each 1% increase in real GDP on average resulted in a 1.7% decline in bankruptcies, compared to a decline of only between 0.4% and 0.7% in previous periods of lower bankruptcies. Accordingly, job losses caused by business failures declined strongly as well, from a peak of 27,940 in 2013 to 18,848 in 2018.
One should be cautious in interpreting bankruptcy data, as they are often influenced by technical factors. E.g., in 2017 there was a sudden increase in the number of bankruptcies, which was likely due to a judicial restructuring and broadening of the Belgian insolvency law that year (see figure B4.2). More recently, we again see an increasing trend in monthly bankruptcy figures. In the first two months of 2019 the number of bankruptcies was 0.6% higher than a year earlier. This may be seen as a signal that the economic cycle is turning. However, according to Graydon, who provides the data, the ongoing increase is partly explained by the fact that many of the companies recently involved in bankruptcies were listed as ‘inactive’ for quite some time. It seems that the new legislation of June 2017, which explicitly requires courts to identify and eliminate ‘phantom companies’, is being applied more widely.
In addition, the bankruptcy data should be put in perspective. In absolute terms, the number of bankruptcies in Belgium is still high and well above its pre-crisis level. This of course is partly due to more new businesses being created in the economic upturn, which eventually resulted in more failures as well. Therefore, the number of bankruptcies must be related to the number of active businesses. Over the last years, this so-called bankruptcy rate declined from 14.7% in 2013 to 10.9% in 2018, a level comparable to the one observed in pre-crisis years. The latter also applies to the ratio of new businesses to bankruptcies (see figure B4.2). Both ratios stabilised in 2017-2018 which, as referred to above, is partly influenced by technical factors.
Figure B4.1 – Bankruptcies and economic growth in Belgium
Source: KBC Economics based on Graydon and NBB.Stat
Figure B4.2 – Bankruptcies in Belgium relative to active and new businesses
Source: KBC Economics based on Graydon and STATBEL